The True Cost of Travel

by Terry Ward 
Posted Dec 23rd 2010 02:43 PM

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The True Cost of Travel

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If you've ever paid for your luggage to have a spot in the cargo hold or agreed to a surcharge for the pleasure of booking a window seat, the question has certainly come to mind: What exactly are you paying for when you purchase an airplane ticket?

According to Bureau of Transportation data and an AOL report, the airlines nabbed nearly $2.6 billion in revenue in the form of baggage fees in the first three quarters of 2010.

And while it's not as obvious what you're paying for when you buy a ticket (other than getting from point A to point B, of course), industry experts can help shed some light on the pieces that make up the true cost of travel.

Jeffrey Breen, president of Cambridge Aviation Research, a Massachusetts-based company that provides custom research and analysis to select industry clients, says that roughly half of an airline's operating costs -- and in turn, half of your ticket price -- go toward fuel and labor, the latter of which includes the pay for flight personnel, maintenance labor, traffic-handling personnel, etc.

With this in mind, says Breen -- and operating under the assumption that a Los Angeles to New York flight (one way) is about 85 percent full these days -- passengers can expect that the price of their individual ticket covers roughly 30 gallons of jet fuel for the cross-country trip aboard an Airbus 320. At a rate of about $2.30 per gallon, that comes to roughly $70 of your ticket price going toward the gas to get you there, says Breen. "Either bring seventy bucks or thirty gallons to the gate," he quips.

Where food and beverages are offered on a flight, he says, associated operating costs were only 1.5 percent in the second quarter of 2010, "so no airline is saving itself by getting rid of cans of soda."

But it's clear to see where airlines are making much of their money these days.

The megatrend for the last few years, says Breen -- and a place where airline customers are feeling hardest hit -- has been the addition of ancillary fees covering everything from baggage and food to more comfortable seats.

"In aggregate, the revenues collected through these ancillary fees are eerily similar to the total industry profit," he says. US Airways, which charged $500 million this year in fees for everything from ticket changes and baggage fees to onboard sales, is expected to rake in profits of between $450 and $475 million, according to Wall Street analysts.

Seeing how -- and where -- these fees add up is rarely an easy task.

Charlie Leocha, director of the Consumer Travel Alliance, is dedicated to pressuring airlines to make these fees more transparent.

"Especially dealing with airlines, the fees that passengers are being charged basically have nothing to do with what it actually costs the airline to provide the service." says Leocha, "The airlines get away with these fees because there's no effective way to fight them. All the airlines do it together and move in a monolithic sort of way, so passengers are basically at the mercy of the airlines."

The True Cost of Travel

The bulk of what passengers pay for an airplane ticket goes towards fuel; Dave Heuts. flickr

Leocha uses the arbitrariness of baggage fees as an example.

"Everyone knows that to ship a bag from New York to L.A. costs more than to ship it from New York to Chicago, because it's a longer distance," he says. "But airlines tell us it costs the same amount of money (by charging the same fee regardless of distance flown). It just makes no sense, because they are charging one single price across the country."

And the fact that we don't get charged at all to check a piece of luggage for a flight from New York to Paris, he says, makes "all their economic arguments go out the window."

"I think most passengers feel that airline fees are the new normal," says Leocha. "And while we feel like we have to live in the real world where airline fees are the new normal, we don't have to live in a real world where the airlines can hide the fees from us and surprise us at the airport with these fees."

And while nobody argues that the airlines, like any business, deserve to make a profit, part of being an educated consumer is realizing how they make that profit.

"Airlines operate on only a few percentage points of profit, and the addition of even small high-margin services like food, WiFi, or a few people upgrading their seats can have a disproportionately large impact on the profitability of an actual flight," says Matt Johnson, a partner with Simon-Kucher & Partners, a strategy and marketing consultant firm in Mount View, California.

Johnson references Bureau of Transportation statistics to determine how much of a company's cost of leasing or purchasing its airplanes goes toward operating costs -- the number comes out to roughly 31 percent for low cost carriers and 41 percent for legacy carriers, he says.

"For airline passengers, the bulk of what you are paying for on an airplane is for the fuel, the crew salaries and the plane, whether the airline bought it or leased it," says Johnson. And the operating cost structure for hotels and cruise lines, he says, are similar.

"For hotels and cruise lines it's the same thing -- buying the boat or the building is really expensive," he says. "They have to pay fixed costs, but they are constantly adding to those assets. That's a big chunk of the costs."

"The cost to clean a room and fluff a pillow each night is not nearly as high as heating the room, insuring it, buying it -- everything to do with a building," he says.

Leocha advises consumers to be aware of the "slow creep of resort fees," which he calls one of the "really big, growing problems in the hotel industry."

"These are fees that you don't see when you go onto any of the hotel sites. You don't see them on the actual hotel site, don't see them on the travel agency site, on Expedia or Priceline," he says. "Most people find out about the resort fees when they get to the hotel."

"And while hotels present resort fees -- which often cover things like Internet, pool towels and a daily newspaper -- as a convenience to the customer," says Leocha, "the only problem is that if you don't want to include any of those items, you still have to pay the resort fee."

"Consumers need to ask whether there is a resort fee, look for it. It's normally written somewhere in the fine print on the website, it's something else consumers need to look for," he says, adding that resort fees are now moving from where they originated, in luxury hotels, into more mainstream properties, too.

Like Loecha, Breen places much importance on making fees more transparent. But he has this advice for the price-conscious traveler.

"You can drive yourself crazy, going shopping online, and trying to figure out how much everything costs," he says. "You can't cover everything -- how much things are manufactured for, how much it costs to ship it to you, how much goes into packaging and advertising."

And overall, when you take into account inflation over the years, flying is still an amazingly affordable form of transport, Breen says. "Anyone who for any reason refers to the good old days of regulation really needs to spend some time with some old airfares, inflation and a calculator," he says.

All those extra charges can really add up. Check out our table of airline fees, arranged by carrier.

Filed Under: Air Travel

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Laura

The point about baggage fees being a flat domestic rate is interesting...especially compared to not having international fees. Thanks for laying this out!

http://bit.ly/Quintess

February 04 2011 at 11:57 AM Report abuse rate up rate down Reply
Tom Bruce

The cost to travel has increased dramatically and that is why it is necessary to shop around to get the best fares and deals. http://www.digitalundivide.com/get-free-online-airlines-travel-quotes-airfares-guides-and-deals-and-book-plane-tickets-and-hotel-rooms

January 31 2011 at 4:44 PM Report abuse rate up rate down Reply
litamam

The post is handsomely written. I have bookmarked you for keeping abreast with your new posts.It is a pleasure going through your post.

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January 27 2011 at 6:31 AM Report abuse rate up rate down Reply
mike

if you dont waunt to pay dont fly . i stay out of air ports because i dont like to be treated like a criminal . the couple times i went was not harassed much probally because i am considerably larger than most guys . the only issue i had was perculiar was in the portland air port . the lady that checked me in was very insistant that i for got one of my bags on the previous flight and was very skiish and pushy to that opinion . i had to explain to her 3 times i only do carryons . when i fly and that is very seldom . i figured i d get profiled due to my complection , i am of greek ancestory . my coworkers call me an iraquie , go figure its in fun anyhow . because of the insistance of the situation i wonder if it might have been a set up . mabe to create a criminal . not sure . possable , probable dont know . a thought though .

January 05 2011 at 5:13 AM Report abuse rate up rate down Reply
Fred Goodwin

Charlie Leocha: "All the airlines do it together and move in a monolithic sort of way, so passengers are basically at the mercy of the airlines."

No Charlie, NOT ALL airlines screw their customers like that. Have you flown Southwest Airlines lately? True, there are no reserved seats or in-flight meals, but there are also no luggage fees.

I only wish SWA flew to more cities to give those rip-off artists some real competition!

January 05 2011 at 1:18 AM Report abuse rate up rate down Reply
on

this article is the problem with mis information its after overhead this vid it was aired on CNBC it shows that an ariline didnt make any profit and very little at all at the end of a transcon flight NYC to LAX
watch this by peter greenberg ~ the true story
http://www.hulu.com/watch/46550/cnbc-originals-inside-american-airlines

January 05 2011 at 12:19 AM Report abuse rate up rate down Reply
bb mad

Sorry, everytime I get on board you see that there was no clean up at all after last flight arrival. Then you look into the eyes of worn out I really do not know what to call them anymore, lets say clerks, that are there to assist customers? Get real? Age old problem not paid enough and overworked and they have to put up with everything you can imagine from people that just do not care about anything for the most part. Better to go back to regulation I think. Airlines are roach coaches anymore. Passengers carrying huge bags like golf bag size? Cmon? Should worry about who and what sat in your seat, previously?
I drive a lot in vending bz. Would rather stay the course anymore.

January 05 2011 at 12:06 AM Report abuse rate up rate down Reply
Think

Where do you get $2.30 a gallon? Jet fuel is well over $5.00 a gallon last I checked. What about the pilot co captain and crew? Are you going to pay them minimum wage? Ever think about maintaining the multi million dollar aircraft?

January 04 2011 at 11:59 PM Report abuse rate up rate down Reply
Scott

I'm not seeing the point of this article. Although I agree that Spirit takes a crap load of your money and the most uncomfortable airline I have ever been on, the truth is air travel is much cheaper than any other travel by far. I just bought a ticket from Florida to California for $247. It would cost me $700 by car plus hotel plus food - more by train and about the same by bus. If people want to complain about any business, it should be oil.

January 04 2011 at 11:48 PM Report abuse rate up rate down Reply
Wan

You haven't been raked over the coals till you deal with Spirit. You probably won't even get to your destination.

January 04 2011 at 11:14 PM Report abuse rate up rate down Reply

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